Why Brazilians Are Protesting

A major Latin American country has been engulfed by massive anti-government protests. The people marching in the streets are concerned about a range of issues, including crime, corruption, inflation, and inadequate public services.

Such news wouldn’t be surprising if the country in question were Venezuela or Argentina. But the ongoing demonstrations in Brazil -- which were initially sparked by a hike in bus fares in São Paulo, but which quickly exploded into a broader, nationwide protest movement -- caught many foreign observers by surprise.

After all, wasn’t it just the other day that Brazil was being celebrated as a great success story? Since 2003, the country has lifted tens of millions of people out of poverty. Indeed, its signature anti-poverty initiative -- a conditional cash-transfer program known as Bolsa Família -- has inspired similar efforts throughout the world. In the years immediately following the 2008 financial crisis, Brazil seemed poised to take the next step in its development. A 2009 Newsweek headline declared it “the crafty superpower.” That was a word you often heard attached to Brazil -- “superpower.” In a December 2010 piece, CBS News correspondent Steve Kroft described it as “a fledgling economic superpower.” That same year, Brazil’s annual GDP growth reached 7.5 percent. As late as March of 2011, Latin Trade magazine was still calling it “Latin America’s superpower.”

During this same period, Brazil’s biggest rival in Latin America -- Mexico -- was struggling to control runaway drug violence. And yet, despite all the global attention given to the violence in Mexico, Brazil actually had a higher murder rate. In fact, Brazilian sociologist Julio Jacobo Waiselfisz has estimated that Brazil’s youth homicide rate increased by a stunning 346 percent between 1980 and 2010. Meanwhile, the country’s overall murder rate jumped by 124 percent, reaching 26.2 per 100,000 in 2010, according to the Sangari Institute. In other words, the 2010 Brazilian homicide rate was 162 percent above the World Health Organization’s “epidemic” level of 10 per 100,000.

The drug violence in Brazil has generally not been as sensational as the drug violence in Mexico, which helps explain why it hasn’t received as much international media coverage. Last year, however, SãoPaulo experienced a sharp increase in drug-related murders, as police forces battled with members of the city’s most powerful criminal organization. Amid preparations for World Cup 2014, which Brazil will host next June and July, the São Paulo violence made headlines around the world. More recently, Brazilians saw video footage that appeared to show an extrajudicial killing of two teenagers by São Paulo military police. Such killings have long been a source of public outrage, and they have fostered distrust of law enforcement. It is probably not a coincidence that São Paulo was ground zero for the ongoing protests, which have become a nationwide affair. The murder rate in Brazil’s largest city is still much lower today than it was a decade ago, but residents now have much greater expectations of security than they did in the early 2000s.

Speaking of expectations, the rapid expansion of the Brazilian middle class has fueled a rapid rise in public expectations of government. It’s the same phenomenon we’ve seen in developing nations around the world: As the middle class grows, so do middle-class expectations. Chile is the richest, most advanced country in Latin America, but that hasn’t stopped university students from conducting a series of protests over tuition fees and inequality.

In Brazil, taxes are high by American standards, and they’re extremely high by developing-world standards. (Total revenues amount to 36 percent of GDP.) But while Brazilians pay European levels of taxation, they don’t get European-quality public services. That is a major complaint of the demonstrators. “We just want what we paid in taxes back, through health care, education, and transportation,” a 34-year-old Brazilian attorney told the Associated Press. “We want the police to protect us, to help the people on the streets who have ended up with no job and no money.”

To make matters worse, Brazilians have watched their government spend enormous sums of taxpayer money building stadiums for the 2014 World Cup. This has exacerbated popular discontent over lousy public services and shoddy infrastructure, and it has also contributed to growing anger over corruption. The Brazilian Football Confederation is famously corrupt, and President Dilma Rousseff, who took office in January 2011, has already seen more than half a dozen government ministers resign due to scandals. Meanwhile, the so-called mensalão scandal -- a congressional bribery scandal that dates back to the presidency of Lula da Silva, Rousseff’s predecessor -- has produced no fewer than 25 convictions.

Brazilian officials have promised that the World Cup will bring their country significant economic benefits. We should be highly skeptical of such promises. As economist Dennis Coates has written, “There is a wide array of evidence that sports mega-events, including the World Cup, have little net impact on the number of tourists arriving and staying at the host destination. Without substantial tourists over and above the normal tourist traffic, unless the World Cup fans spend substantially more than the usual travelers, there can be little new impact on the local economy of the mega-event.”

But regardless of what economic benefits Brazil receives from the World Cup in 2014, its economy needs a boost right now. After reaping the fruits of a rapidly expanding labor force and booming commodity exports for several years, the Brazilian economy can no longer rely on swift “catch-up growth.” The days of 7.5 percent annual growth rates -- or even 4 percent annual growth rates -- are gone, most likely forever. “Brazil will continue growing at pretty anemic rates,” World Bank economist Pablo Fajnzylber said last September. “It will likely not go back to that 4 percent.” Brazilian growth slowed dramatically in 2012, thanks to an overvalued currency and a major economic slowdown in China (which is Brazil’s biggest trading partner). Indeed, Latin America’s largest economy grew by only 0.9 percent last year, and it grew by only 0.6 percent in the first quarter of 2013. Annual inflation is running at 6.5 percent, and frustration with rising prices has prompted many Brazilians to join the ongoing demonstrations.

In short: Brazil needs a new economic model. Unfortunately, many of its policymakers are tempted to borrow from the China model of state-led capitalism. “It used to be that all of Latin America looked to Europe as its ideal model, and that one day Brazil, Argentina, and Colombia would become a Portugal, Italy, Greece, or Spain, if it was lucky,” a Brazilian diplomat told the Financial Timeslast year. “But now, given the eurozone crisis, that is no longer the case. And, increasingly, China is becoming a more attractive or plausible model.”

Yet the China model is no longer working for China, and it would not work for Brazil. After all, the Brazilian government is already much too involved in the economy, which is why the South American giant ranks 100th in the Heritage Foundation’s Index of Economic Freedom (Mexico is 50th) and 130th in the World Bank’s Ease of Doing Business Index (Mexico is 48th). Brazil’s tax code is far too complicated, its level of taxation is far too high, and its burdensome labor regulations are a major drag on economic activity. Over the long term, reviving and maintaining strong economic growth will require government officials to reduce the “Brazil cost,” i.e., make the country more welcoming to business investment and entrepreneurship. It will also require them to improve Brazil’s weak education system and its hopelessly inadequate infrastructure.

The transition to a more sustainable, free-market economic model won’t be easy. As Brazilian-American economist José Scheinkman said last year, “We have to do the tough stuff.” Many Brazilians won’t be happy with the necessary reforms -- which means we should expect more protests in the future.